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Constructing the true art market index: A novel 2-step hedonic approach and its application to the German art market

Author

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  • Kräussl, Roman
  • Elsland, Niels van

Abstract

This study develops a novel 2-step hedonic approach, which is used to construct a price index for German paintings. This approach enables the researcher to use every single auction record, instead of only those auction records that belong to a sub-sample of selected artists. This results in a substantially larger sample available for research and it lowers the selection bias that is inherent in the traditional hedonic and repeat sales methodologies. Using a unique sample of 61,135 auction records for German artworks created by 5,115 different artists over the period 1985 to 2007, we find that the geometric annual return on German art is just 3.8 percent, with a standard deviation of 17.87 percent. Although our results indicate that art underperforms the market portfolio and is not proportionally rewarded for downside risk, under some circumstances art should be included in an optimal portfolio for diversification purposes.

Suggested Citation

  • Kräussl, Roman & Elsland, Niels van, 2008. "Constructing the true art market index: A novel 2-step hedonic approach and its application to the German art market," CFS Working Paper Series 2008/11, Center for Financial Studies (CFS).
  • Handle: RePEc:zbw:cfswop:200811
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    References listed on IDEAS

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    Cited by:

    1. Chanont Banternghansa & Kathryn Graddy, 2011. "The impact of the Droit de Suite in the UK: an empirical analysis," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 35(2), pages 81-100, May.
    2. Dorota Witkowska, 2014. "An Application of Hedonic Regression to Evaluate Prices of Polish Paintings," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 20(3), pages 281-293, August.
    3. Kompa Krzysztof & Witkowska Dorota, 2014. "Construction Of Hedonic Price Index For The “Most Liquid” Polish Painters," Folia Oeconomica Stetinensia, Sciendo, vol. 14(2), pages 76-100, December.
    4. repec:kap:iaecre:v:20:y:2014:i:3:p:281-293 is not listed on IDEAS
    5. repec:ris:apltrx:0324 is not listed on IDEAS

    More about this item

    Keywords

    Optimal Asset Allocation; Diversification; Art Investments; Hedonic Model; Downside Risk;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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